AUD/USD holds gains above 0.6560, the dollar eases ahead of the NFP report
- The Aussie Dollar remains close to YTD highs despite downbeat Australian Trade Balance data.
- A weak US ADP employment report hurt the US Dollar on Wednesday as investors ramped up bets for Fed cuts.
- The Nonfarm Payrolls reading might boost US Dollar volatility later today..
The Australian Dollar remains consolidating gains near the year-to-date highs at 0.6590. The negative impact from a lower-than-expected Australian trade Surplus in May has been contained above 0.6560 on Thursday, and the pair has retraced previous losses as the US Dollar drifts lower ahead of the US Nonfarm Payroll report.
Investors are wary of placing large US Dollar bets ahead of June’s Payrolls release, and more so after the disappointing ADP employment reading seen on Wednesday. The ADP report revealed a 33,000 net loss in private employment in June, against expectations of a 95,000 increase.
The market is now awaiting the NFP report for a more accurate assessment of the labour market’s health, and also on the Federal Reserve’s monetary policy plans. Today’s payrolls are likely to boost the US Dollar’s volatility.
Technical Analysis: Potential Double Top at 0.6590
Technical indicators remain positive, with the trend of higher highs and higher lows intact and the intraday RSI steady above 50. Price action, however, suggests a potential Double top at 0.6590 that might be anticipating a deeper correction.
The pair should breach the June 2 low, at 0.6546, to confirm the DT pattern. The figure’s measured target is the 38.2% Fibonacci retracement of the June 23-July 1 rally, at 0.6510.
On the upside, above the mentioned July 1 and 2 high, at 0.6590, the trendline resistance from May 24 lows, now around 0.6645, is a plausible target for bulls.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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